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Marginal Relief under section 87A of Income Tax Act, 1961 for New Tax Regime u/s 115BAC(1A)

Presently, rebate is allowed u/s 87A of Rs. 12,500/- in old regime of Income Tax, if any resident individual whose total income during the previous year does not exceed Rs. 5,00,000. Rebate is available only to the extent of Rs.12,500, and if total income exceeds Rs. 5,00,000 no rebate will be available.

The situation is exhibited in the Table given herein below (Old Marginal Regime).

Total Income Tax Liability before claiming rebate U/s 87A Excess Income above. Excess of tax over income earned above Rebate available u/s. 87A Net tax payable after rebate
1 2 3= (1-5Lac) (4=2-3) 5 (6=2-5)
5,00,000 12,500 0 12,500
5,05,000 13,500 5,000 5,000 0 13,500
7,00,000 52,500 2,00,000 2,00,000 0 52,500

Section 87A rebate does not allow in old regime if your income go above 5,00,000. But 

A New proviso inserted in section 87A by the Finance Act, 2023, w.e.f. 1-4-2024: Applicable from FY 2023-24.

Provided that where the total income of the assessee is chargeable to tax under sub-section (1A) of section 115BAC, and the total income—

(a) does not exceed seven hundred thousand rupees, the assessee shall be entitled to a deduction from the amount of income-tax (as computed before allowing for the deductions under this Chapter) on his total income with which he is chargeable for any assessment year, of an amount equal to one hundred per cent of such income-tax or an amount of twenty-five thousand rupees, whichever is less;

(b) exceeds seven hundred thousand rupees and the income-tax payable on such total income exceeds the amount by which the total income is in excess of seven hundred thousand rupees, the assessee shall be entitled to a deduction from the amount of income-tax (as computed before allowing the deductions under this Chapter) on his total income, of an amount equal to the amount by which the income-tax payable on such total income is in excess of the amount by which the total income exceeds seven hundred thousand rupees.

 Wherein it is provided for higher rebate to Individual, HUF, Association of Person (AOP), BOI & artificial jurisdictional person who opting for the new tax regime u/s. 115BAC(1A) of the Income Tax Act. A rebate u/s. 87A is available if his total income during the previous year does not exceed Rs.7,00,000. Rebate is available to the extent of Rs.25,000, and no rebate will be available if total income exceeds Rs.7,00,000.

New Tax Regime

The situation is exhibited in the Table given herein below (New Marginal Scheme).

Total Income Tax Liability before claiming rebate U/s 87A Excess Income above 700,000 Excess of tax over income earned above 7,00,000 Rebate available u/s. 87A Net tax payable after rebate
1 2 3= (1-7Lac) (4=2-3) 5 (6=2-5)
7,00,000 25,000 25,000 25,000
7,05,000 25,500 5,000 20,500 20,500 5,000
7,10,000 26,000 10,000 16,000 16,000 10,000
7,20,000 27,000 20,000 7,000 7,000 20,000
7,25,000 27,500 25,000 2,500 2,500 25,000
7,27,780 27,780 27,780 27,780
7,30,000 28,000 30,000 (2,000) 28,000

After insertion of the above proviso, if the income of the individual increase slightly more than Rs.7,00,000, then tax rebate will be available and the assessee has to pay tax on the total addition income earned. The situation may help to avoid the situation where the additional tax jumped in old regime. 

Conclusion- After analysis of both the scheme new marginal scheme (U/s-87) is more attractive and tax beneficial.

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Author Bio

Adv Rajbir Singh is a Member of Bar Council of Punjab & Haryana from 2018 and enrolled as a member of “DTBA, Faridabad” Parivar from 2022. He is also a “Trademark Attorney”. He has also qualified MBA in 2011 and LLB in 2016. He is also regular speaker in GST study circle meetings in "Di View Full Profile

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16 Comments

  1. Muhafiz Khan says:

    Suppose I have LTCG of Rs 701000 and opted new tax regime. The tax liability before 87A will be Rs. 80200 (i.e. (701000-300000)@20%). what will be the marginal relief Rs. 79200 or Rs. 25000?

    1. Rajbir Singh says:

      Please note that rebate under Section 87A is not available against the tax liability against long-term capital gains on listed shares and equity mutual funds under Section 112A.

  2. Jainendra Kumar Jain says:

    According to your article, tax Rabate under section 87 A is available to Individual, HUF, Association of Person (AOP), BOI & artificial jurisdictional person who opting for the new tax regime u/s. 115BAC(1A) of the Income Tax Act from assessment year 2024-25.
    However, according to MEMORANDUM EXPLAINING THE PROVISIONS IN THE FINANCE BILL, 2023, it is available as below:

    From assessment year 2024-25 onwards, an assessee, being an individual resident in India whose income is chargeable to tax under the proposed sub-section (1A) of section 115BAC, shall now be entitled to a rebate of 100 per cent of the amount of income-tax payable on a total income not exceeding Rs 7 lakh.
    [Clause 2, 43, 50, 52, 55, 56 & the First Schedule]
    Please clarify.

    1. Rajbir Singh says:

      Jainendra Kumar Jain
      If your income below Rs. 7 Lakh, There will be no tax liability as new Regime of Income tax.
      100% Tax Rebate upto income Rs. 7 Lakhs. as also clarified in Article with a Table.

      Following proviso shall be inserted in section 87A by the Finance Act, 2023, w.e.f. 1-4-2024 :

      Provided that where the total income of the assessee is chargeable to tax under sub-section (1A) of section 115BAC, and the total income—

      (a) does not exceed seven hundred thousand rupees, the assessee shall be entitled to a deduction from the amount of income-tax (as computed before allowing for the deductions under this Chapter) on his total income with which he is chargeable for any assessment year, of an amount equal to one hundred per cent of such income-tax or an amount of twenty-five thousand rupees, whichever is less;

      (b) exceeds seven hundred thousand rupees and the income-tax payable on such total income exceeds the amount by which the total income is in excess of seven hundred thousand rupees, the assessee shall be entitled to a deduction from the amount of income-tax (as computed before allowing the deductions under this Chapter) on his total income, of an amount equal to the amount by which the income-tax payable on such total income is in excess of the amount by which the total income exceeds seven hundred thousand rupees.

  3. CA.M. Lakshmanan says:

    Why marginal relief is denied to the Old Tax Regime followers? Is it not injustice? Why is the Government discouraging savings? All of a sudden, an assessee who was filing ROI in old tax regime cannot convert to new tax Regime because there will be commitments such as LIC premium, housing loan repayment etc., which are necessarily to be paid..

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